Published November 3, 2008

DBS unit cuts S-chips figures

Slowing China consumption cited for revised 2008 and 2009 forecasts

By JAMIE LEE

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DBS Vickers has slashed its fiscal 2008 and 2009 forecasts for S-chips including Fibrechem Technologies, Yanlord Land Group and Epure International, citing slowing consumption in China.

The research note issued last Thursday came after DBS's economics team snipped 2 per cent off its 2009 GDP growth estimate for China to 8 per cent on muted export and wage increases, the lag effect in fiscal policy boosts for the economy, and as banks shy away from lending.

DBS Vickers reduced the FY08 earnings estimate for China Sky by 19.3 per cent to $145 million on slower-than-expected demand for nylon in the second half of 2008.

It also lowered Fibrechem's FY08 profit forecast by 5.7 per cent to $105 million, to factor in higher provisions relating to withholding tax on dividends payable.

With the adjusted forecast earnings, DBS Vickers cut the target price for China Sky to 42 cents from 96 cents previously, and that for Fibrechem to 32 cents from an earlier 62 cents.

Property player Yanlord saw its FY08 earnings forecast slashed by 30.4 per cent to $156 million and its FY09 profit estimate by 44.9 per cent to $219 million. Its target price was shaved to 93 cents from $1 previously.

'Expected slow pre-sale volumes in the next year or so could filter through to Yanlord's top line quite quickly, given that the business model for property developers in China requires a certain percentage of completion before the commencement of pre-sales,' says DBS Vickers.

The local brokerage also brought down its FY09 estimate for water treatment firm Epure by 6.3 per cent to $66 million on expectations of slower order flows.

'We believe the company would also be more selective in project biddings during a financial crisis,' the brokerage says, adding that Epure's new target price stands at 34 cents.

DBS Vickers notes that though Yanlord Land has $338 million of convertible bonds (CB) outstanding for conversion, it expects the company to have enough cash to meet its obligations in the event of a redemption.

The CB issue is due in 2012, though holders have the option to redeem these in the first quarter of 2010.

The brokerage also expects China Sky to have net cash of more than 900 million yuan (S$195 million) in 2008-2009, factoring in its current capital expenditure plan of 1.3 billion yuan in the period.

While the group had initial plans to acquire its upstream supplier, nylon chips producer as well as its caprolactum producer - the feedstock to nylon chips - DBS Vickers notes that the company has delayed its acquisition plans to after 2009.

'The group is considering to pay more dividends this year or to execute its share buyback mandate,' says DBS Vickers.